Impact assessment with option of full monetarisation

Our impact assessment method “Stepwise2006” carries all impacts forward to a single score, either monetary units or QALYs while maintaining the option of providing results at midpoint categories or damage categories.

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A new approach to monetarisation

The Stepwise method applies a new approach to monetarisation that avoids some of the problems of earlier cost-benefit assessments that have been criticised of incompleteness and high uncertainty in relation to monetarisation of environmental impacts. The Stepwise method carries all impacts forward to a single score, either monetary units or QALYs (Quality Adjusted Life Years) while maintaining the option of providing results at midpoint categories (environmental themes) or damage categories (human well-being, biodiversity, and resource productivity).

The Stepwise2006 method combines the best characterisation models from two of the most recent impact assessment methods, the IMPACT2002+ v. 2.1 and the EDIP2003 methods. Both methods are second-generation methods, building on previous work (Ecoindicator1999 and EDIP1997, respectively).

The LCIA method “Ecoindicator99” was the first to provide impact pathways that ended at a physical score for each of the three damage categories humans, nature, economic production, although the latter only covered resources. We redefine these physical scores in units of QALY for impacts on human well-being, PDF*m2*years or Biodiversity Adjusted Hectare Years (BAHY) for impacts on nature, and monetary units for impacts on economic production.

The monetary value of a QALY has an upper limit defined by the budget constraint, i.e. the fact that the average annual income is the maximum that an average person can pay for an additional life year. Since a QALY by definition is a life-year lived at full well-being, the budget constraint can be determined as the potential average annual income at full well-being, which is equal to the potential annual economic production per capita. We determine the potential annual economic production per capita to be 74000 EUR2003 with an uncertainty estimate of 62000 to 84000 EUR2003. This monetary value of a QALY corresponds well to the willingness-to-pay estimate of the ExternE project. Differences to other estimates can be explained by inherent biases in their valuation approaches.

All physical impacts can be expressed in a single score by evaluating impacts on nature in terms of QALYs. This can be done in parallel to the health state evaluations that allow us to aggregate different impacts in human well-being into the common unit of QALYs, i.e. by using choice modelling. Currently, we apply a temporary proxy value of 1400 EUR/BAHY with an uncertainty range of 350-3500 EUR/BAHY.

Applying the Stepwise2006 method to different case studies, we have found that two impact categories that obtained less emphasis in previous LCIA methods, namely global warming and nature occupation (impacts of land use), obtain high importance in the results. This shows the importance of being able to express impacts on nature in the same units as impacts on human well-being.

Being based on the equivalence between QALYs and monetary units, the method can seamlessly integrate new impact categories, e.g. for social and economic impacts, thus allowing for continuous increases of coverage of the assessment.

The Stepwise2006 method is fully documented and available as a  zip-file containing the following publications: Using the budget constraint to monetarise impact assessment results and Environmental improvement potentials of meat and dairy products as well as a csv-file for direct import to the method library of the SimaPro LCA software. The method is compared to other methods in this poster presentation and described further in the publication: Comparing three life cycle impact assessment methods from an endpoint perspective.